Executive Summary

• The recent conflict between Israel and Iran illustrates heightened geopolitical tensions and the potential risk of disruption in energy markets.

• United States airstrikes on Iranian nuclear facilities targeted the threat of Iranian uranium enrichment and nuclear weapon development, but the full extent of damage to the nuclear program is still being assessed.

• So far, all parties have avoided targeting major facilities involved in the production and transportation of oil in the region, an encouraging sign that contributed to the relatively muted market reaction.

• A ceasefire agreement was announced between Iran and Israel on Monday, June 23, signaling an effort at de-escalation and providing relief to equity markets, which have rallied to near all-time highs.

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Tension in the Middle East remains elevated after the sudden outbreak of conflict in mid-June between Israel and Iran brought the region back into focus for global investors. Israel launched surprise airstrikes on Iran’s nuclear facilities, targeting sites like Fordow and Natanz, in an effort to halt Iran’s progress in its nuclear program. Iran then retaliated with drone and missile attacks on Israel. The United States also intervened, with airstrikes targeting key Iranian nuclear sites, which President Trump hailed as “a spectacular military success.”[1]

Oil prices initially spiked alongside concerns about potential disruption in energy markets due to Iran’s role and proximity to globally significant energy production and transportation.

The initial risk-off move was short-lived, however, as Iran retaliated in a way that was perceived as largely symbolic, firing missiles at a US military base in Qatar. These missiles were intercepted and resulted in no significant damage or casualties.

Shortly thereafter, President Trump announced that Iran and Israel had reached a ceasefire agreement on Monday, June 23, after about twelve days of hostilities.[2] The truce remains tenuous; within hours, both Israel and Iran accused the other of violating the ceasefire. Nevertheless, markets have taken Iran’s weaker-than-feared retaliation and the nascent ceasefire as signs of de-escalation, and equity markets rebounded strongly to near-all-time highs. The price of oil has also declined significantly.

Oil Prices Spiked and Quickly Retreated in June

While markets have responded positively to recent developments, there is still elevated risk surrounding the duration of the ceasefire and how much of a setback this was for the Iranian nuclear program. It remains unclear whether all uranium enrichment facilities were completely destroyed and whether the stockpiles of partially enriched uranium were also eliminated.

In an encouraging sign of containment, all parties involved have, so far, strategically avoided targeting the major facilities involved in the production and transportation of oil in the region. For instance, the Strait of Hormuz, just south of Iran, is a route that facilitates a significant percentage of oil transported globally from the Persian Gulf and is thought to be one of the most critical pieces of energy infrastructure in the world.[3] While it appears unlikely under the de-escalation path, any extended period of closure of the Strait of Hormuz or attacks on other infrastructure in the Gulf could cause significant disruption in energy markets and a massive spike in oil prices.  

Historically, there have been many instances of conflict in the Middle East.  Humanitarian aspects aside, financial markets have typically rebounded relatively quickly from these conflicts, with oil prices experiencing the most volatility (relative to global stock or bond markets).

Modern Middle East Conflict - Historical Context

Source: YCharts, Bloomberg Crude Oil Historical Prices

At this stage, the current Israel-Iran conflict does not appear to be spreading into a broader regional or global conflict, but the situation remains fluid.  It is important to note that Iran’s share of global energy production has fallen to around 4%[4]. In the United States, we have witnessed a dramatic increase in domestic production over the last decade, increasing our energy independence. If a supply disruption does occur in the Persian Gulf, the US is no longer as reliant on foreign sources for crude oil and may be able to further increase domestic production, partially offsetting any dramatic spike in global oil prices.[3]

United States Not as Reliant on Foreign Energy Suppliers

Periods of heightened geopolitical uncertainty often result in elevated news cycle coverage and can drive increased financial market volatility. As long-term investors, we focus on the lasting economic and market impacts when evaluating investment decisions and believe reacting to short-term news cycles is perilous. We believe that the most successful strategy is to maintain diversification, stay invested, and to be ready to evaluate opportunities that periods of volatility can create for long-term investors. As always, please reach out if you would like to schedule a time to review your specific situation.

Sources

[1] Source: Investors brace for oil price spike, rush to havens after US bombs Iran nuclear sites | Reuters

[2] Source: Bloomberg as of June 24, 2025

[3] Source: Tortoise Capital: Middle East Crisis & What it Means for Global Energy Markets, June 24, 2025

[4] Source: Conflict in the Middle East: What could this mean for financial markets? | RBC Brewin Dolphin

Important Disclosures

Forecasts regarding the market or economy are subject to a wide range of possible outcomes. The views presented in this piece may prove to be inaccurate for a variety of factors. These views are as of the date listed above and are subject to change based on changes in fundamental economic or market-related data.